The Absolute Insanity of Recruiting REALTORS

Here’s an update to some thoughts posted in the past on “recruiting” and “retention” in real estate. Brokers worldwide spend an incredible amount of time “finding people” to join their company and then going to extremes when others wish to leave it. It’s a constant scurrying-about of energy, time, money and frankly - waste. No other industry, certainly no other worthwhile sales industry, goes through such crazy contortions to grow its business. For decades, “recruiting and retention” topics have attracted packed rooms at conventions; new schemes, gimmicks and tricks have been taught and tried; brokers have done just about every extreme, from offering 100% commissions to creating exit strategies. And, if the numbers prove correct, none of it works.

Every wonder why?

It’s fairly simple. Most recruiting and retention fails today because most brokers build their businesses like Ponzi schemes. Now don’t get me wrong: properly done, multi-level-marketing systems can work. There are great examples like Amway. But real estate should be embarrassed that it’s growth strategy is so fragile - because like the vast majority of MLMs, the evidence shows that the pyramid approach to building a real estate company is a total failure.

Some data: According to NAR, about 60% of all agents leave join and exit the industry within 18 months; 90% of the business turns over completely every 5 years. Less than 10% do 90% of the total volume. And while the top 25% of the industry earns more than $200,000 in commissions annually (and works 60-plus hours a week to do so - the vast majority (55%) earn under $9700 and the bottom 75% would be better off with a minimum-wage job as a pastry chef than continue their “careers” as a REALTOR.

So, no: the recruiting and retention strategy of REALTORS for the last half-century doesn’t work.

Here are a few simple reasons:

Owners are awful recruiters, and even worse managers. First, owners don’t know why they are recruiting. They think like a pyramid scheme: More bodies, doing 1-2 more transactions each, and we’ve got a lot of deals. Nobody adds up the expenses of supporting a larger base at the bottom, or the risks. It’s all about “pack in the bodies” and let the chips fall where they may. So recruiting is simply a “pack the house” not “manage the production” strategy. And that’s why they are worse managers: because they really never manage the people they recruit. Just bring them in, make sure the have a license (or give them one, see below) and tell them to start “selling”. Somehow. Miraculously. Just start selling.

The vast majority of broker-owners in the business today were great salespeople who became brokers and drank the Koolaid: They figured that if they could get a bunch of people working for them, they could pick up a piece of the pie. That works: if you recruit the right people and you manage them to higher productivity. Since 57% of brokers report a financial loss every year, there’s no evidence that the majority of the industry, therefore, knows how to do either.

What evidence is there that owners are bad recruiters? Look at the recruits. Almost none of their recruits are qualified to be salespeople. Sure, they spend time trying to rob a “top” agents from the competition, but that’s almost always a disaster. While those people can “sell” the only way most brokers attract them is to offer a financial compensation plan that’s a disaster for their bottom line. So why do they do it? Nobody really knows; and nobody can ever prove it’s financially profitable to recruit the top agents from another company with a higher split - especially while another company is robbing you of your current top agents. It’s a big shell game. Don’t forget to ask why the “top” agents are willing to be lured away, either: People join companies because of a manager; and they leave because of a manager. Once owners start focusing more on “recruiting more people” than living up to the promises they made when recruiting their existing ones - more training, more support, more coaching, blah, blah, blah - once they start ignoring their current salespeople, then they become ripe to be attracted away. People leave one office for another because the broker fails to manage them. Managing and coaching people is the only way to retain them: Make them productive and build strong relationships and retention is not a problem. Ever. Remember, Southwest pays its people substantially less than other airlines, but they have a line out the door of people who want to join. It’s not about compensation.

Why do managers start ignoring their current salesforce? Partly because the only way to keep afloat - especially after giving away the store in silly compensation plans to top agents - is to find lots of lower-split agents to make up the lost margins. So the manager’s time is spent recruiting lots of “newbies” to offset the “top agents.” The other part is because owners aren’t really managers. The vast majority have never taken a “management” course, don’t have an MBA and have no idea what their real job is. For proof, look at how many owners still “sell” because they “have to” to keep the scheme moving. If you’re selling and recruiting, you’re not managing. And if you’re not managing, most people around you are failing.

In a steel mill or a computer factory, the manager doesn’t “do” the job of his workers; he manages their performance, improving and guiding their skills to higher production. If a manager has to do their job, he can’t have time to work with his people. If he’s constantly interviewing and hiring new people, because his existing people are always leaving, he can’t create performance, because he’s constantly “resetting” the performance levels back to “entry level.” Same holds true for REALTORS.

Yet it gets worse: There is ample evidence to conclude that recruiting is the absolute most destructive activity a broker undertakes in real estate. Worse than 100% commission splits, because we know there are lots of brokers who make that work (see RE/MAX for example). Even newspaper advertising is less damaging than recruiting, because while the ad may represent a waste of money, it doesn’t represent the “addition of incompetence” into the workforce. And that’s what most recruiting involves nowadays.

Look at most real estate agents today and ask yourself one question: Are they qualified to be sales people? Not can they sell a home or put it in MLS or take digital photos. What makes them qualified salespeople? Do they have the skills, talent and experience to build relationships, demonstrate value and negotiate sales? Forget about paperwork: that’s for secretaries. Never mind agency law or Fair Housing - those are just the “particulars” of a product line (every industry has regulations for the salespeople to follow). There’s nothing special about selling homes - if you can sell pharmaceuticals or insurance or cars, you can learn about a product line involving homes. But can you sell?

No shock to find out that most “REALTORS” today aren’t qualified sales people. A rare few were salespeople before they became REALTORS. Most are “recruiting’ from other professions: teachers, firemen, computer guys, construction workers, whatever. None of those jobs require or teach the art of sales. So why do brokers “beg and plead” with these people to join their company? Why do we run pre-license schools? Sure, anyone can learn the law around real estate, but would we want to recruit them as salespeople? The only pre-qualification most people in a pre-license course have is that a) they are alive and b) they have enough money to attend the course. Why would brokers want to “pick” from any of them? John the Cook and Sally the Secretary have no history, skill, demonstrable proof that they can - or will be able to - sell. Sure, they can “say” they want to get into sales, but that’s irrelevant. And please, could we all just shut up about “wanting to help people.” If that’s all that’s needed to be successful in real estate sales, then let’s just hire a bunch of helpful nuns (no offense, nuns).

Brokers damage their companies over and over by bringing in people who don’t know how to sell - and whom they don’t have time to teach to sell, because they’re too busy recruiting and retaining. They actually create non-productivity by employing unqualified people. And they create the retention problem because a) the few qualified sales people they have don’t want to stick around with a bunch of incompetent complaining pseudo-agents and b) they certainly don’t want to coach them on behalf of the manager (that’s their job) and c) the unproductive people consume lots of time (they need more of the manager’s help than the productive salespeople) and money (they still need business cards and advertising) and finally d) that’s why the broker has to start selling again, because nobody’s making enough money to pay the bills.

What a mess!

If you owned a coffee shop, and needed help making coffee for customers, would you hire someone whose past experience was janitorial work or computer programming or roofing? Don’t you think that hiring salespeople should require “previous experience and proven performance” in the act of actually selling? Is this really such a hard concept?

Finding qualified salespeople is simple. Look around; they are everywhere. The local electronics store will have a star salesperson; so will the local car dealership, insurance office, telephone equipment provider, home siding company and computer store. Great sales people are everywhere: they just sell “different” products than homes when you meet them. But if they have a track record of sales (the usual awards and achievements are nice; but just go “experience” them yourself by acting like a potential customer) then you have your target recruit. Stop trying to “turn” a teacher into a real estate sales person; there’s a reason people ended up in their previous jobs: it was a match for their talents. If you want to hire talent, you have to actually interview people with a proven history of using it. In real estate, that talent isn’t paperwork or pricing or open houses or any of that mundania: the only talent that matters is sales.

If you had 10 salespeople with sales experience, would you need 40 “people” to make the same amount of sales? Doubtful. Your expenses would drop, like advertising and training and technology and office space. You could stop constantly recruiting. And productive people don’t need to be “retained” as much as non-productive people wish to be kept. Even if most managers were inexperienced and unqualified managers, they would at least have the time to learn to be better managers.

One last thought: Let’s not forget the consumer. If we base the “quality” of someone’s performance on the only valid measurement - their income - then it’s clear that 75% of the business is unqualified to be servicing customers. If they’re only earning $45k or so, it’s because nobody wants to pay them. And the research shows they are still “working” 40 hours or more a week. So the market is already telling you they don’t want to work with the people that most owners are recruiting. Consumers are afraid that they only have a 1 in 4 chance of getting the “good agent” when they call or email. They are more aware than ever that many agents really shouldn’t be in the business. If they’re selling, they don’t want to risk their equity with the inexperienced incompetent; if they’re buying, they are downright dissatisfied with who they can choose from. Remember that last year, only 36% of buyers found their home through their agent, a number that is declining every year - while 25% found it online themselves, a number that is growing every year. Buyers are telling us they don’t want to work with the majority of the people in today’s offices. Buyers are professionals themselves - professional doctors, teachers, mechanics, computer programmers - and they know “good” ones from “bad” ones in their profession. They can deduce the same when they meet REALTORS, too.

So it’s a big circle. Owners are former good salespeople with no management training; they have attended the school of “trial and error” for too long, and their businesses are crashing today, not because of the “market” but because of their broken systems. They don’t know how to manage (or why) and they don’t know why to recruit (or whom). They risk losing their good agents because they surround them with unqualified fellow agents, who take up all of the manager’s time and money, and even risk blowing-up the deals they co-broke with the good agents. The only place this system can take everyone is downward, which is why so many leave so frequently and the problem never goes away.

We’ve been talking about “fixing” recruiting for decades. Don’t you think we could have solved it by now?